Lowering VAT threshold would put SMEs at a disadvantage, FSB warns

The Federation of Small Businesses (FSB) has warned that lowering the VAT threshold would ‘drain small businesses of time and money’.

The FSB stated that forcing small businesses into the VAT regime ‘would create a real drag on business output’.

The warning came as a survey carried out by the FSB found that VAT-registered small business owners spend an average of 44 hours each year managing VAT administration.

27% of businesses surveyed said that they find the VAT system difficult to understand, with 21% revealing that different VAT thresholds pose as barriers to understanding.

Meanwhile, 43% of businesses stated that calculating the proportion of VAT owed is the most time-consuming compliance requirement, with a further 17% citing filling out VAT returns as being the most onerous VAT task they must carry out.

Mike Cherry, National Chairman of the FSB, said: ‘VAT is the most time-consuming tax to deal with. Small firms and the self-employed spend days and days every year complying with their VAT obligations – time that should be spent expanding their businesses.

‘A sudden drop in the VAT threshold would punish the smallest of businesses and shift, rather than solve, the bunching issue. The Chancellor should be prioritising simplification, rather than expansion, of VAT and the tax system at large.’